Chromalloy: United States Law and International Arbitration at the Crossroads
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CHROMALLOY: UNITED STATES LAW AND INTERNATIONAL ARBITRATION AT THE CROSSROADS STEPHEN T. OSTROWSM & YUVAL SHANY* INTRODUCTION International commercial arbitration as a favored means of dis- pute resolution is arguably enjoying its greatest popularity ever.1 Ar- bitration as a means of effective international dispute resolution has grown rapidly over the last twenty-five years, and most transnational contracts today contain some provision for arbitration.2 The uncer- tainties of litigation in foreign courts 3-often perceived as unnecessa- rily lengthy, procedurally cumbersome, costly, and, on occasion, biased in favor of the domestic party-makes arbitration an attractive alternative.4 Arbitration enables parties to draft provisions for future * This Note was originally prepared for a seminar in international litigation and arbi- tration at the New York University School of Law in the Spring of 1997. The authors are grateful for the support and guidance of the seminar's professors and would like to thank in particular Professors Richard Hulbert, Andreas Lowenfeld, and Linda Silberman for their helpful comments and suggestions on earlier drafts. Also much appreciated is the extraordinary editorial assistance rendered by the members of the New York University Law Review, especially the efforts of Alex Hortis, John McGuire, Alton Murakami, Kevin Ouellette, Paul Schmidt, and Marianna Vaidman Stone. Without their assistance, this Note would not have been possible. Any errors and omissions, of course, are our own. 1 A telling example is provided by the docket growth of the International Chamber of Commerce's International Court of Arbitration in Paris. See Horacio Grigera Na6n, In- troductory Note, ICC Int'l Ct. Arb. Bull., Dec. 1996, at 1, 1 (noting "ICC arbitration['s] ... ever increasing case-load .... updating and upgrading of... resources to handle its growing responsibilities, and an ICC Court which has expanded its multinational membership"); News from the Court, ICC Int'l Ct. Arb. Bull., Dec. 1996, at 4, 5 (noting "dramatic in- crease" in cases from 285 in 1987 to 427 in 1995, with further increases expected). 2 See, e.g., Gary B. Born, International Commercial Arbitration in the United States: Commentary and Materials 6 n.23 (1994) ("'[I]n international cases, where jurisdictional problems are bound to arise in the event of dispute, the practice of incorporating arbitra- tion clauses into contracts is becoming almost universal."' (quoting Justice Michael Kerr, International Arbitration v. Litigation, 1980 J. Bus. L. 164, 164)); Michael Kerr, Preface to the Second Edition, in W. Laurence Craig et al., International Chamber of Commerce Arbitration at xi, xiii (2d ed. 1990) (observing that it would now be "surprising" for parties to international contract not to include arbitration clause). 3 See, e.g., Gerold Hermann, The Arbitration Agreement as the Foundation of Arbi- tration and Its Recognition by the Courts, in International Arbitration in a Changing World 41, 42 (Albert Jan van den Berg ed., 1994) (characterizing arbitration agreement in transnational setting as expression of parties' preference for arbitration over litigation in national courts). 4 See Born, supra note 2, at 2-3: 1650 Imaged with the Permission of N.Y.U. Law Review November 1998] CHROMALLOY legal proceedings that meet their specific needs and can provide for greater equality between the potential adversaries.5 Such goals can be accomplished while remaining largely detached from the domestic ju- dicial system of either party. The autonomy of the arbitral alternative, however, is limited. Parties will often initiate domestic proceedings in connection with a dispute referred to arbitration.6 Domestic courts may act to enforce both the agreement to arbitrate as we1l as the eventual award ren- dered by the arbitrators.7 The courts may also act to appoint the arbi- trators themselves.8 Finally, domestic courts may act to assist in procedural matters and, in some cases, decree interim measures.9 In [I]nternational arbitration is often designed and accepted particularly to assure parties from different jurisdiction[s] that their disputes will be resolved neu- trally. Among other things, the parties seek a neutral decisionmaker (de- tached from the governmental institutions and cultural biases of either party) applying internationally neutral procedural rules (rather than a particular na- tional legal regime). In addition, international arbitration is frequently re- garded as a means of mitigating the peculiar uncertainties of transnational litigation-which can include protracted jurisdictional disputes and expensive parallel proceedings-by designating a single, exclusive dispute resolution mechanism for the parties' disagreements. 5 See id. at 2 (noting "defining characteristic" of arbitration as its flexibility in allowing parties to agree upon scope of procedures to govern resolution of dispute); Jack J. Coe, Jr., International Commercial Arbitration: American Principles and Practice in a Global Con- text 59-60 (1997) (highlighting ability to tailor arbitral proceedings, both as to choice of substantive law and procedural matters). 6 For a more complete discussion of the various methods by which judicial interven- tion can be and is most commonly sought, see generally Andreas Bucher, Court Interven- tion in Arbitration, in International Arbitration in the 21st Century. Tomards "Judicialization" and Uniformity? 29,29-44 (Richard B. Lillich & Charles N. Brower eds., 1994). 7 In the United States, the Federal Arbitration Act (FAA) supplies the specific juris- dictional grant to courts to enforce arbitral awards. See 9 U.S.C. §§ 2,9-10 (1994) (permit- ting enforcement of agreements to arbitrate and awards rendered by arbitrators, subject to limited defenses). For a discussion of FAA provisions, see Born, supra note 2, at 188-91. The FAA is discussed in greater detail infra Part LB. In the international arena, the en- forcement of agreements to arbitrate and awards is governed by the terms of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, see infra note 16, by which state signatories are bound to recognize and enforce foreign arbi- tral awards in accordance with its provisions. The Convention is discussed in greater detail infra Part I.A. 8 See Jain v. de Mere, 51 F.3d 686,692 (7th Cir. 1995) (upholding district court's power to appoint arbitrators in international arbitration); Pacific Reinsurance Management Corp. v. Ohio Reinsurance Corp., 814 F.2d 1324, 1328 (9th Cir. 1987) (upholding district court's appointment of arbitrators in domestic arbitration); see also Bucher, supra note 6,at 30-32 (discussing judicial role in composition of arbitral tribunal). 9 See, e.g., Carolina Power & Light Co. v. Uranex, 451 F. Supp. 1044, 1051-52 (ND. Cal. 1977) (holding that court has power to decree preaward attachment); see also Rules of Arbitration of the International Chamber of Commerce art. 23(2) (1998) ("[I1n appropri- ate circumstances ... parties may apply to any competent judicial authority for interim or conservatory measures."). For a more general discussion, see Andreas F. Lowenfeld, In- Imaged with the Permission of N.Y.U. Law Review NEW YORK UNIVERSITY LAW REVIEW [V7ol. 73:1650 addition, courts at the situs, the location where the arbitration occurs, often have the authority to nullify the award. 10 Given this domestic judicial involvement, parallel and inconsis- tent judgments between an arbitral tribunal and a domestic court can occur, creating a complex problem of international commercial law. Historically, to most scholars and practitioners, such conflicting results were viewed as hardly any conflict at all: The award, deemed to be subject to the domestic law in which it was rendered, simply ceased to exist.1' However, recent scholarship attributing a denationalized character to arbitral awards 12 has renewed debate over the proper res- olution of this conflict. Further complicating the matter is the exist- ence of a complex web of treaty instruments that govern the international enforcement of arbitral awards and foreign judgments and seek to coordinate their interaction with domestic legal systems.13 The resulting collision of domestic and international standards in this ternational Litigation and Arbitration 364-65 (1993) (noting that many United States courts have nonetheless declined to permit preaward attachment in connection with inter- national arbitrations, except in maritime cases). 10 Under the United Nations Commission on International 1rade Law's Model Law on International Commercial Arbitration, U.N. GAOR, 40th Sess., Annex 1, U.N. Doc. A/401 17 (1985), an award may be set aside by a competent court if the dispute is nonarbitrable or if the award conflicts with domestic public policy. See id. art. 34(2)(b). In the United Kingdom, arbitration law prior to 1979 permitted an extensive right of appeal of an award on questions of law, and British courts had the power to nullify an award based upon erroneous conclusions of fact or law; as amended, the new Arbitration Act still permits limited review on questions of law that "substantially affect" the rights of the parties. Ar- bitration Act, 1996, ch. 23, § 69(3) (Eng.). For a discussion of relevant foreign law address- ing the review of arbitral awards, see generally Daniel M. Kolkey, Attacking Arbitral Awards: Rights of Appeal and Review in International Arbitrations, 22 Int'l Law. 693 (1988). 11See, e.g., Pieter Sanders, New York Convention on the Recognition and Enforce- ment of Foreign Arbitral Awards, 6 Neth. Int'l L. Rev. 43, 55 (1959) (noting that to "en- forc[e] a non-existing arbitral award would be an impossibility"). 12 See Charles Jarrosson, Comment, 1994 Revue de l'Arbitrage 329, 335-36 (noting that view of award as not integrated into juridical order of state in which it was rendered as continuing evolution in international arbitration law); Jan Paulsson, Rediscovering the New York Convention: Further Reflections on Chromalloy, Mealey's Int'l Arb. Rep., Apr. 1997, at 20, 27 (arguing that "an arbitrator is not an emanation of a sovereign, and..